Business, Taxation

Telecom sector: FED reduced to 17 percent

The government has announced major incentives for telecom sector by reducing Federal Excise Duty from 18.5% to 17% on telecommunication services, a reduction in the rate of withholding tax for mobile phone subscribers from 14% to 12.5% and custom duty reduction from Rs 1,000 to Rs 650 on smart /android phones. However, the government did not meet the long standing demand of giving to the telecom sector the status of industry.

According to the Finance Bill 2017, Federal Excise Duty on telecommunication services is proposed to be reduced from 18.5% to 17%. Custom Duty at the rate 11% and 16% has been exempted and instead Regulatory Duty at uniform rate of 9% levied on the telecom equipment. Custom Duty at the rate of Rs 250 per set converted into Regulatory Duty at the rate Rs 250 per set on mobile phones.

Mobile phones are chargeable to sales tax at the rates of Rs 300, Rs 1,000 and Rs 1,500 per mobile phone set depending upon categories of mobile phones. It is proposed to merge sales tax rates of Rs 300 and Rs 1,000 per set into Rs 650 per set. The proposal will promote use of information technology and will also reduce disputes on categorization of mobile phones, it added.

The number of mobile phone subscribers in Pakistan has shown a gradual and sustained increase and presently there are about 140 million mobile telephone subscribers in Pakistan belonging to various strata of society. In order to promote mobile phone density, the rate of withholding income tax for mobile phone subscribers is being reduced from 14% to 12.5%.

The government admitted that the mobile telephony is heavily taxed. It has been decided to provide a relief to common man by reducing the withholding income tax on cell phone call from 14% to 12.5% and Federal Excise Duty from 18.5% to 17%. We hope that in the same spirit the provincial government shall also reduce the rate of sales tax on mobile telephony, said Finance Minister Ishaq Dar in his budget speech. In order to encourage use of smart / android phones – custom duty shall be reduced from Rs 1, 000 to Rs 650.

Further the government will set up an IT software park in Islamabad with the help of Korean Government at a cost of Rs 6 billion. The financial arrangements for this have been concluded and the construction work shall start soon.

The start-up software houses shall be exempted from Income Tax for the first 3 years. Exports of IT services from Islamabad and other Federal territories shall be exempted from Sales Tax. IT export houses/ companies shall be allowed to open Foreign Exchange Accounts in Pakistan on the condition that deposit in these accounts shall only be allowed through remittances from abroad in respect of their export earnings. They will be allowed to use these accounts for meeting business related payments outside Pakistan.